Revenue has fallen for five consecutive years, can BESTORE get out of trouble by "reducing prices"?
Written by Wang Shuran
"The average price of more than 300 products has been reduced by 22%, and the highest price has been reduced by 45%", on November 30, BESTORE announced the first large-scale price reduction in 17 years.
It can be seen from the internal open letter issued by Yang Yinfen, the new chairman of BESTORE, that BESTORE is very resolute in its heart of change.
The reaction of the capital market was also more positive, and at the opening of the market on December 1, the share price of BESTORE soared to the limit, and the stock price was 21.32 yuan as of press time.
In fact, under the current economic situation, price reduction is the general trend - e-commerce platforms have launched tens of billions of subsidies, Hema has transformed into discount stores, and the market value of Pinduoduo, which has risen with a low price advantage, once surpassed Alibaba...
However, BESTORE only proposed the positioning of "high-end snacks" in January 2019, and now the road to high-end has come to an end in less than 4 years, which can be described as short.
Is it a good thing to "self-deprecate" now?
In March this year, it announced with great fanfare that it would "reduce its price", but now it is in full decline, not only the low-price sub-brand has no splash, but also is riddled with negative controversies such as "arrears of wages" and "asset freezing".
BESTORE will definitely not want to repeat Zhong Xuegao's mistake this time with a price cut, but it remains to be seen whether the price reduction can change the dilemma of its revenue and profit decline.
Revenue fell for five consecutive years, and the price was reduced to get out of trouble
BESTORE's price cut is not a simple promotion, but a battle for survival.
This stems from the pain it is experiencing - BESTORE's revenue has been declining year-on-year for 5 consecutive quarters, and in the third quarter of this year, it suffered a double decline in revenue and profit, of which revenue fell by 4.53% year-on-year, and net profit fell as high as 97.88% year-on-year.
Source: BESTORE financial report
Among the 10 domestic A-share listed companies on leisure snacks (Southern Black Sesame, Three Squirrels, BESTORE, Laiyifen, Qiaqia Food, Yanjin Shop, Ganyuan Food, Jinzai Food, Miss You, Youyou Food), only Laiyifen has suffered such a double decline like it.
Since the beginning of this year, the market value of BESTORE has continued to fall, from 14.785 billion yuan at the beginning of the year to 8.549 billion yuan at the close of trading on December 1, evaporating more than 6 billion yuan, and many major shareholders have reduced their holdings.
In an internal open letter, Yang Yinfen bluntly said: "At present, what is in front of us is not only the problem of difficulty in living, but the problem of whether we can live. ”
This situation is forced by the situation - the economic situation and consumer demand are changing, and BESTORE's high-end positioning is no longer appropriate.
According to the "2023 Global Consumer Insights Survey" released by PwC, 51% of Chinese consumers said that they are reducing spending on discretionary goods considering the current economic environment, and according to the "2023 Contemporary Youth Brand Consumption Data Insight Report" jointly released by the Thermal Research Institute and the Post-00s Observation Room, 55.9% of young people said that they would consider the cost performance of products when consuming, and 43.2% would consider product quality.
Source: "2023 Contemporary Youth Brand Consumption Data Insight Report"
Specific to the snack industry, "low price" has become an important orientation of consumption, and the rapid rise of snack stores with more price power advantages, such as Snack is very busy, Snack Youming, Zhao Yiming, etc., is a strong proof.
According to the Pacific Securities Research Report, the total number of stores in the national snack wholesale channel is nearly 20,000, the industry is still in the stage of accelerated penetration, and the speed of opening stores of various brands continues to exceed expectations, such as retail is very busy, it took only 4 months to open more than 1,000 new stores this year, and more than 1,000 new stores have been added since the beginning of the year, which is more efficient than the new 600 stores in the first three quarters of this year. At the same time, the price of the products in these snack stores is relatively cheaper, about 20~30% lower than that of supermarkets and other channels.
Under this trend, BESTORE's high-end positioning has been challenged.
This is where the controversial "snack assassin" incident originated in the past.
In August this year, some netizens posted that the unit price of dried sea salt pineapple purchased in a store of BESTORE was as high as 125.8 yuan/kg, and the unit price of dried yellow peach fruit was 167.8 yuan/kg; in September, some netizens broke the news that the unit price of marinated duck tongue in sauce purchased in BESTORE was as high as 528.8 yuan/kg, and the unit price of lemon boneless phoenix feet was 229.8 yuan/kg.
In fact, at that time, a number of media reporters compared the prices of their peers and found that in terms of sauce and marinated duck tongue, the price of BESTORE was not more expensive than that of brands such as Three Squirrels and Laiyifen.
However, BESTORE still left a "expensive" label, some netizens commented that "I have been in BESTORE stores before, and now I will bypass it", "I haven't been there for more than a year, the price is outrageous, every time I go in, I come out is more than 100, and I feel that there are few things".
This shows that BESTORE's previous high-end strategy was not recognized by users, and its products did not show high quality that matched the high price, as mentioned in the open letter, "Our current difficulties are caused by our failure to make differentiation and a sense of value." ”
Not only that, but the high-end positioning has not been able to bring the high gross profit that BESTORE deserves. From 2020 to 2022, the gross profit margin of BESTORE's main business continued to decline from 32.15% to 27.83%, with an average gross profit margin of about 28%, with reference to about 26% for the three squirrels of its peers, about 38% for Yanjin Shop, and about 42% for Laiyifen.
The reason for this is that its sales expenses have been high, which has dragged down the gross profit margin. Its sales expenses in the third quarter of this year were 1.15 billion yuan, accounting for 19.17% of total revenue, much higher than its peers, such as three squirrels were 17.99% in the same period, and Yanjin Shop was 12.30%.
Source: BESTORE financial report
In addition, BESTORE was also stabbed by the companies it invested.
On November 10, the first brother in the domestic snack industry was "very busy" and merged with the third in the industry, "Zhao Yiming Snacks".
And Zhao Yiming Snacks just got 150 million yuan led by Black Ant Capital and followed by BESTORE in February this year.
But just half a year later, Zhao Yiming turned to merge with the rival of BESTORE, which undoubtedly brought competitive pressure to the latter.
The various failures and pressures intertwined inside and outside were summarized in Yang Yinfen's open letter as "sluggish development, declining scale and profitability", and BESTORE saw the problem clearly, and a change was naturally imperative.
Low gross profit and then price reduction, BESTORE is in a dilemma
On the one hand, according to the Daily Economic News, the price reduction is mainly for offline stores, and "Financial Story" asked the customer service of BESTORE's Tmall flagship store, and also got a reply that "this update is mainly for offline, and the current way of online activities will be maintained".
It is worth mentioning that there may be differences in price, taste and specifications between similar products online and offline, and it is speculated that the pallets of the two channels are different.
On Xiaohongshu, many netizens said that they bought the same product in stores and online, but the taste was different, for example, sweet and spicy tofu was sweet and spicy offline, but a little salty online. In terms of price, some netizens compared the price of a single product in the store and e-commerce and found that the price of the electronic brand is nearly twice as expensive as that of the store, but there are sometimes activities such as full discount coupons online, and the total order price difference after the final match with a variety of products is not so big.
On the other hand, this price reduction is only for some SKUs.
According to the financial report, by the end of 2022, BESTORE has a total of 1,655 omni-channel SKUs, and this time only about 300 of them will be reduced in price, macadamia nuts, pine nuts, pistachios, cashew nuts and other nuts, pork jerky, duck neck, grilled sausages and other meat snacks, spicy strips, dried tofu, bread cakes, melon seeds and other categories with high repurchase rates, which are the main force for price reduction.
Taking pork jerky as an example, the price of classic pork jerky is lower than Sam's, Sam's is 89 yuan/jin, and BESTORE is 65 yuan/jin. A 60-gram bag of shredded pork is priced at 5.9 yuan, a 40% drop, and nuts are sold at 29.9 yuan per can, and roasted purple cashew nuts (500g) are reduced to 49.9 yuan per can, and the price of related nut products is reduced by up to 40%.
In fact, in the reply to the investor Q&A in August this year, BESTORE explained this structural adjustment. BESTORE said that in terms of products, it will adjust the structural layout according to the differentiated needs of users: down to the "good goods are not expensive" series, reduce the gross profit margin of this part of the product, and at the same time lower the packaging and other requirements, the price is more close to the people, up to make a high-quality image series, so that consumers have perceived high quality, and the rest is an intermediate product series.
In other words, BESTORE still retains the pallet of "high-quality image", but only opens up a subdivided pallet positioning according to the differentiation of consumer demand, rather than completely turning the entire brand image 360 degrees.
This is different from Zhongxuegao, the low-price sub-brand launched by Zhongxuegao is equivalent to the same category being reduced from high-end to parity, which will cause the original consumers to have a negative feeling of being cut leeks before.
According to Zhu Danpeng, an analyst in China's food industry, there will be no such problem with BESTORE's price reduction, because the original price of BESTORE is not high enough to be light luxury, and only some SKUs have been reduced.
He believes that BESTORE's move may enhance its brand effect and fan effect to a certain extent, "The reason is very simple, when the price of good things drops, the number of fans will be further expanded." ”
However, the price reduction will affect the gross profit margin, will this make the gross profit margin problem that is not dominantly "worse"?
Generally speaking, brands with higher gross profit levels have more room for operation in "price reduction", such as Yanjin Shop, which takes the independent production model, Zhang Xuewu, chairman of Yanjin Shop, said at the 2021 financial report meeting that Yanjin Shop has at least 15 points of price advantage in core products compared with competitors.
In fact, BESTORE is relatively cautious in reducing prices. First of all, this price reduction is only for offline stores, and the gross profit margin of BESTORE's offline stores has not been low, at about 32%, which is much higher than the level of about 25% of the three squirrels, and close to the level of about 33% of Yanjin Shop, which can support a certain amount of price reduction space.
Source: BESTORE financial report
More importantly, BESTORE's price reduction is not simply a promotion, but relies on supply chain optimization, internal management optimization and other ways to achieve long-term low prices. As mentioned in the open letter, "we need to improve efficiency and significantly reduce overhead" and "we will work with our supply chain partners to improve efficiency and reduce costs through technological innovation and digital tools, and ultimately achieve affordable prices", these cost savings may make up for the loss of gross profit caused by low prices.
In general, BESTORE's price reduction may be able to improve its brand image to a certain extent, so that it can stop the current deteriorating predicament.
The industry rolls up low prices, and it is not enough to reduce prices
BESTORE may be able to stop losses by reducing prices, but it is not easy to improve its essential market competitiveness.
On the one hand, the retail industry has long been accustomed to low-price involution, and BESTORE has changed from high to low, which is difficult to bring differentiated advantages.
It has long become an industry consensus that snacks take the road of cost performance, and some brands have already taken the lead. For example, as early as April 2022, Three Squirrels announced that it would carry out an all-round strategic transformation with "high-end cost performance" as the core, and it has also been making efforts to reform the supply chain, including the core category of nuts through self-built packaging factories to improve production and operation efficiency by increasing the automation rate.
Yanjin Shop also proposed a strategic transformation in 2022 - gradually upgrading from "high quality + high cost performance under high cost" to "high quality + high cost performance above low cost".
The financial report shows that the two brands have achieved revenue and profit growth in the third quarter of this year, among them, the revenue of three squirrels increased by 38.56% year-on-year, the net profit increased by 40.86% year-on-year, and the Yanjin shop increased by 46.17% and 67.28% year-on-year respectively, which is in strong contrast with the double decline of BESTORE.
Source: Three Squirrels Financial Report
In Zhu Danpeng's view, after the "official announcement" of BESTORE, more peers may follow up, driving the industry into a parity cycle.
This will inevitably lead to the industry continuing to roll up at low prices, and in the final analysis, the snack industry still has not jumped out of the fate of homogeneous competition and low-price fighting.
In this kind of homogeneous competition, BESTORE does not necessarily have a differentiated advantage - limited by the OEM production model, the "high quality" pursued by BESTORE is not easy to implement.
In the open letter, BESTORE repeatedly emphasized that "every penny spent on quality can be perceived and recognized by consumers" and "unswervingly take the development route of high-quality snacks", but it has always adopted the OEM production model, and it is difficult to effectively manage food safety and quality like independent production. The number of consumer complaints about BESTORE on the Black Cat complaint platform alone is as high as more than 2,100, relatively speaking, there are only a few hundred in Yanjin Shop and Laiyifen.
Of course, the same problem also exists for the three squirrels, but as early as 2017, it began to build its own factory, and up to now, the three squirrels have independently built a demonstration factory for the four core nut categories of daily nuts, macadamia nuts, pecans, and pistachios.
Among the 10 listed snack companies mentioned above, only BESTORE and Laiyifen do not have self-built factories.
In order to stimulate growth, BESTORE has also tried the road of multi-branding, but in recent years, it has launched sub-brands such as "Little Food Fairy" and "BESTORE Feiyang", which have not made much splash.
Therefore, whether it is price or high quality, BESTORE has not shown a significantly higher differentiation potential than its peers.
In addition, BESTORE also faces problems caused by the channel structure.
In the first half of this year, its online revenue accounted for 41.15%, which was an advantage, but in the context of the fading of the current online traffic dividend, it brought problems.
In the first half of this year, BESTORE's online revenue fell by 35.56% year-on-year. In this year's Double 11 Tmall casual snack pre-sale list, BESTORE also fell outside the top 10, while in 2022 and 2021, it ranked 8th and 2nd respectively.
Source: Double 11 Tmall casual snack pre-sale list
BESTORE attributed the reason to "affected by factors such as the stratification and grading of consumer demand, the differentiation of online platforms and users", and Essence Securities also had a consistent analysis conclusion on this, which believed that the decline in BESTORE's online business was mainly due to the decline in the online market, as well as the diversion of high-end demand and the intensification of price strategy under the demand for cost performance.
Compared with most of its peers, BESTORE's online channels account for a relatively high level, which is lower than the online proportion of about 70% of Three Squirrels, but much higher than that of Yanjin Shop, Laiyifen about 11%, and Ganyuan Food about 15%.
Although BESTORE is also strengthening its offline channel layout, including launching the franchise-based "Ten Thousand Lights" plan and developing snack mass merchandisers "Snack Stubborn", it will take time, so the overall decline caused by the failure of online channels may be maintained for a period of time.
To sum up, BESTORE's price reduction may bring a certain degree of positive improvement, but the cyclical challenges still hang high above the head, and it cannot be achieved overnight by price reduction alone.